They were a common feature in the residential lending market before everything went belly-up with the financial crisis: 100% loan-to-value mortgages.
In fact, some lenders went over 100%, helping to cover things like fees and stamp duty, anticipating that house prices would continue to rise strongly.
That, of course, was profligate. In today’s more cautious times, 100% mortgages are no longer commonplace or as easy to secure.
But they are re-appearing in the mortgage market, albeit with significant risk-minded changes to the product terms.
In January 2019, Lloyds Bank unveiled its new 100% mortgage product for first-time buyers called “Lend a Hand.”
It’s a three-year 2.99% fixed-rate product with a maximum term of 30 years and a top property value of £500,000. There’s also £300 cashback.
However, here’s the all-important catch: A member of the applicant’s family will have to secure the mortgage by depositing 10% of the property’s value in a Lloyd’s savings account, which comes with a guaranteed 2.5% interest rate for three years.
This deal is intended to make it easier for families to use their savings in support of relatives who are first-time buyers because they are not locking the cash up in the equity of a property.
Barclays has a similar product called the Family Springboard Mortgage.
This offers 100% loan-to-value with a three-year fixed rate of 2.95% if a family member or other helper secures the borrowing with a 10% sum held in a Helpful Start account, which carries a savings rate of 2.25%.
The Post Office also has a five-year fixed-rate “Family Link Assistor” product which offers 100% of the lending needed to buy a home up to a top value of £500,000.
This product is structured so that 90% of the lending is to the first-time buyer, and the remaining 10% is a second interest-free mortgage secured against the home of an assistor, such as a parent or grandparent. That home must be mortgage-free, however.
For the first five years, you will make two payments. The first will be on the 90% portion, which carries a 3.89% interest rate. The second payment will be zero interest and on the remaining 10%.
With these products and a handful of others in the market, it is possible for first-time buyers to step onto the property ladder without a deposit — but they’ll still need help from family or friends to do it.